WAVE SYSTEMS CORP - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-24752

Wave Systems Corp.

(Exact name of registrant as specified in its charter)

Delaware	13-3477246
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

480 Pleasant Street
Lee, Massachusetts 01238
(Address of principal executive offices)
(Zip code)

(413) 243-1600
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act.

Yes o Noý

The number of shares outstanding of each of the issuer’s classes of common stock as of June 30, 2003: 51,783,950 shares of Class A Common Stock and 314,225 shares of Class B Common Stock.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

WAVE SYSTEMS CORP. AND SUBSIDIARIES

(a development stage corporation)

Unaudited Consolidated Balance Sheets

	As of
	June 30, 2003			December 31, 2002
	June 30, 2003			December 31, 2002
Assets
Current assets:
Cash and cash equivalents	$	4,330,547		$	10,221,124
Cash Collected on Behalf of Charities	—			235,553
Notes Receivable from Officers	1,022,867			278,342
Inventories	1,113,006			1,112,818
Prepaid expenses and other receivables	158,184			574,316
Total current assets	6,624,604			12,422,153
Marketable Equity Securities	4,546,304			2,881,016
Property and equipment, net	2,367,734			2,542,765
Other assets	307,511			363,438
Total Assets	13,846,153			18,209,372
Liabilities, Preferred Stock and Stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses	2,473,616			3,404,377
Accrued dividends	91,417			—
Due to Charities	—			263,156
Deferred Revenue	83,333			—
Total current liabilities	2,648,366			3,667,533

Series H Redeemable Convertible Preferred Stock, $0.01 par value. 548.5 shares issued and outstanding in 2003, liquidation/redemption value $5,485,000	2,788,209			—

Common stock, $.01 par value. Authorized 75,000,000 shares as Class A; 51,783,950 shares issued and outstanding in 2003 and 51,771,918 in 2002	517,840			517,720
Common stock, $.01 par value. Authorized 13,000,000 shares as Class B; 314,225 shares issued and outstanding in 2003 and 324,225 in 2002	3,142			3,242
Capital in excess of par value	251,924,854			247,112,405
Deficit accumulated during the development stage	(245,759,070		)	(233,091,528		)
Other Comprehensive Income (Loss) – unrealized gain on marketable securities	1,722,812			—
Total stockholders’ equity	8,409,578			14,541,839
Total Liabilities, Preferred Stock and Stockholders’ Equity	13,846,153			$	18,209,372

See accompanying notes to unaudited consolidated financial statements.

WAVE SYSTEMS CORP. AND SUBSIDIARIES

(a development stage corporation)

Consolidated Statements of Operations

(Unaudited)

									Period from February 12, 1988 (inception) through June 30, 2003




	Three Months ended				Six Months ended
	June 30, 2003		June 30, 2002		June 30, 2003		June 30, 2002
Net Revenues:
Product	$	1,175	$	74,997	$	1,338	$	99,997	487,452
Services	12,232		2,795		24,781		223,410		766,078
Licensing and Other	20,320		—		24,012		—		529,911
Total Net Revenues	33,727		77,792		50,131		323,407		1,783,441
Cost of sales:
Product	948		36,941		2,803		53,366		283,858
Services	3,818		1,572		4,967		94,133		364,673
Licensing and Other	—		—		1,404		—		137,041
Total Cost of Sales	4,766		38,513		9,174		147,499		785,572
Gross margin	28,961		39,279		40,957		175,908		997,869
Operating expenses:
Selling, general, and administrative	2,858,936		4,712,019		6,703,286		10,126,765		134,363,245
Research and development	1,593,923		3,232,472		4,229,057		6,272,887		88,191,746
Write-off of Intangibles and other impaired assets	—		—		—		905,390		3,332,948
Restructuring Costs and other special charges	—		—		—		726,280		726,280
Amortization of goodwill	—		—		—		—		2,294,176
Write-off of goodwill	—		—		—		—		3,054,456
In process research and development expense	—		—		—		—		2,176,000
Acquisition Costs	—		—		—